CBDT notifies no TDS on aircraft lease rent paid to IFSC units

The Central Government, through the Central Board of Direct Taxes (CBDT), has specified that no tax is to be deducted at source (TDS) on lease rent paid to a unit in an International Financial Services Centre (IFSC) for the lease of an aircraft. Notification No. 74/2026, dated 3 July 2026, is issued under section 400(1) read with section 147 of the Income-tax Act, 2025 and is deemed to have come into force on 1 April 2026.

What has changed

Under the notification, no deduction is to be made under section 393(1) [Table S.No. 2] of the Act on payments in the nature of lease rent or supplemental lease rent made by a person (the lessee) to a unit located in an IFSC (the lessor) for the lease of an aircraft. The relief is subject to these conditions:

• Declaration by the lessor: the lessor must give the lessee a statement-cum-declaration in Form No. 1(N), with details of the twenty consecutive tax years for which it opts to claim the deduction under section 147. It must furnish and verify the form for each of those tax years.
• No deduction after receipt: the lessee must not deduct tax on payments made or credited to the lessor after the date it receives a copy of Form No. 1(N).
• Reporting: the lessee must report all payments on which tax was not deducted because of this notification in its TDS statement under section 397(3)(b), read with rule 219 of the Income-tax Rules, 2026.
• Time limit: the relief is available only during the twenty consecutive tax years declared in the form. The lessee must deduct tax on lease rent for any other year.

For this notification, “aircraft” has the meaning given in Schedule VI (Note 3) of the Act, and “International Financial Services Centre” and “Unit” have the meanings given in the Special Economic Zones Act, 2005. The Principal Director General or Director General of Income-tax (Systems) is to lay down the procedures, formats and standards for capturing the data and uploading documents.

Form No. 1(N) asks for the lessor’s name, PAN, the name and address of the IFSC unit, contact details, the tax year, the permission or registration held (under the Banking Regulation Act, 1949, the SEBI Act, 1992, the International Financial Services Centre Authority Act, 2019 or another law mentioned in section 147), the period for which the deduction is opted and the initial tax year of the claim. It must be signed by a person competent to sign the return of income under section 265.

Who is affected

Any person that pays lease rent or supplemental lease rent for an aircraft to a unit located in an IFSC, such as an airline, and the IFSC units engaged in aircraft leasing that claim the deduction under section 147.

What this means for businesses

For lessees, this removes TDS on aircraft lease rent paid to IFSC lessors, but only after the lessor’s Form No. 1(N) is in hand and only for the tax years it covers. Payments made before the form is received are not covered by the notification. Lessees still have to show these payments in their TDS statements, so their accounts payable and TDS teams will need a record of each lessor’s declaration and the tax years it covers.

The notification says no person is adversely affected by giving it retrospective effect. It does not say how tax already deducted on such lease rent between 1 April 2026 and the date of the notification is to be treated, so lessees should check that with an adviser.

The notification mainly matters to the aviation sector and to IFSC-based leasing units. Most startups and SMEs are not directly affected.

What to do now

• Lessees: obtain Form No. 1(N) from each IFSC lessor for the current tax year before releasing lease rent without TDS.
• Lessees: report the payments made without TDS in the TDS statement.
• IFSC lessors: furnish and verify Form No. 1(N) for each tax year in the twenty-year period chosen.

Source: CBDT Notification No. 74/2026.